Daily Archives: May 20, 2016

Trump once revealed his income tax returns. They showed he didn’t pay a cent.

The last time information from Donald Trump’s income-tax returns was made public, the bottom line was striking: He had paid the federal government $0 in income taxes.

The disclosure, in a 1981 report by New Jersey gambling regulators, revealed that the wealthy Manhattan investor had for at least two years in the late 1970s taken advantage of a tax-code provision popular with developers that allowed him to report negative income.

Today, as the presumptive Republican presidential nominee, Trump regularly denounces corporate executives for using loopholes and “false deductions to “get away with murder” when it comes to avoiding taxes.

“They make a fortune. They pay no tax,” Trump said last year on CBS. “It’s ridiculous, okay?”

Read on.

‘Panama Papers’ may help Sen. Grassley’s transparency legislation

DES MOINES | The “Panama Papers” — leaked documents from a Panama-based law firm that sets up anonymous shell companies for clients – may provide a spark for legislation Sen. Chuck Grassley says will increase corporate transparency.

“Transparency brings accountability. You get back to something that’s pretty basic to everything I do in government,” said Grassley, chairman of the Senate Judiciary Committee. Along with Rhode Island Democratic Sen. Sheldon Whitehouse he is co-sponsoring the Incorporation Transparency and Law Enforcement Assistance Act that would ensure the disclosure of beneficial owners in the United States.

The “Panama Papers,” the result of an investigation by the International Consortium of Investigative Journalists and more than 100 news outlets, illustrate the use of shell corporations by wealthy individuals, politicians and businesses to hide legal activities.

“The tool is used to avoid, well, I don’t know whether it would be just taxes or a lot of things other than taxes,” Grassley said. “Who knows about the underworld being involved, money laundering and I don’t know how many other things.”

When Iowa Citizen Action Network in Des Moines hosted a two-day seminar on the subject it attracted representatives of the faith community, small business and law enforcement. Much of their concern was the use of shell companies in human and drug trafficking, said Sue Dinsdale, ICAN executive director.

“I’ve been working on this for the past couple of years,” Dinsdale said. “It never gets a lot of traction because it’s not real exciting. But the ‘Panama Papers’ got people thinking and brought this to the forefront.”

Read on.

How Rudy Giuliani Helped Landlords Get a Tax Break With No Strings Attached

New York’s Legislature wanted to give tax breaks in Lower Manhattan in exchange for limits on rent increases. The mayor and the real estate lobby had another idea.

In June 1995, a proposal to revitalize the ghostly New York neighborhood near Wall Street was poised to pass the state Senate. The bill offered developers multimillion-dollar tax breaks if they were willing to turn aging office buildings into apartments. Landlords, in turn, would agree to limit rent increases, a standard provision for such programs.

However, just hours before the Senate was scheduled to adjourn for the summer, Joseph L. Bruno, the Republican leader of the Senate, surprisingly slammed the brakes and pulled the bill off the calendar. He later said the reason was simple: He wanted time to consult New York City’s mayor, Rudolph Giuliani.

In the months that followed, ProPublica has found, a handful of Republicans maneuvered behind the scenes to radically undermine the rent-stabilization aspect of the program without actually rewriting the bill. They accomplished this goal through a novel approach: Giuliani wrote Bruno a letter in August declaring that the city’s intention was for the rent limits to apply only to tenants who paid less than $2,000 a month. Anyone else would have to pay market rates.

No one attempted to change the language of the bill, which had already been approved by the Assembly. It said apartments were to be “fully subject’’ to rent-stabilization laws

The debate was brief when the Senate finally met in October. Just before the vote, a Republican Senator asked to read Giuliani’s letter into the record. None of the Senators commented on its contents, and the bill passed 53—1.

The tax program — known as 421-g — spurred the creation of almost 10,000 rental units that helped transform lower Manhattan over the past 20 years. However, three out of every four units created under the program were never rent stabilized because the initial tenants paid more than $2,000 a month.

As rents have gone up, many more units have escaped stabilization as developers, their lawyers, and officials in state and city government have accepted Giuliani’s letter as the last word on how to interpret the 1995 law.

The state housing authority cited Giuliani when it concluded in 1997 that expensive apartments could be rented without restrictions. The city asked developers applying for benefits under the program identify their units as stabilized or exempt. When tenants raised questions, landlords showed them Giuliani’s letter.

Read on.

Tampa Bay still sits near the top of the nation for ‘zombie homes’ in foreclosure

The Tampa Bay metro area continues to have one of the nation’s largest number of “zombie foreclosures” — vacant homes that banks are repossessing.

According to RealtyTrac, 627 bay area homes in some stage of foreclosure sat empty during the first three months of this year. Among metro areas with at least 100,000 residential properties, Tampa Bay ranked fourth in zombies after New York (3,526), Philadelphia (1,744) and Miami (651).

Compared to the same period last year, however, the number of bay area zombies dropped almost 15 percent. Nationwide, zombies are down 30 percent.

“Lenders have been taking advantage of the strong seller’s market to dispose of lingering foreclosure inventory over the past year,” Daren Blomquist, RealtyTrac’s senior vice president, said in a news release.

Read on.

Banks identify possible replacements for U.S. Libor

A group of global banks and clearing houses, working with U.S. regulators, said on Friday it has identified two possible replacements for Libor, the benchmark interest rate for $160 trillion worth of credit for everything from home mortgages to corporate loans.

The Alternative Reference Rates Committee (ARRC) said that together with the Federal Reserve it has identified the Fed’s Overnight Bank Funding Rate (OBFR) and the overnight rate on U.S. Treasury securities pledged as collateral in repurchase, or repo, transactions as alternatives.

The London Interbank Offered Rate has been in regulators’ cross hairs since its credibility was tarnished by a rate-rigging scandal emerging from the 2008 financial crisis. About a dozen global banks collectively have paid tens of billions of dollars in fines to settle the matter.

“The case for moving ahead to a new benchmark is very strong. The new benchmark is going be robust with a lot of transactions and will be resistant to manipulation,” Fed Governor Jerome Powell told Reuters.

ARRC said the two rates it identified as replacements represent “robust” markets, each with $300 billion worth of daily trades. Bankers and regulators have raised alarms about diminishing daily liquidity in the markets for unsecured loans like Libor, calling into question their reliability as a gauge for U.S. borrowing costs.

The stakes are large: Libor’s benchmark 3-month rate stands as a reference rate for pricing $160 trillion of loans in the United States and, together with companion rates in Europe and Asia, has some $350 trillion of global credit tied to it.

Read on.

Rules for ‘too big to fail’ insurance firms coming soon: Fed official

The Federal Reserve will soon take up rules for insurance companies deemed “too big to fail” intended to head off risks to U.S. financial stability, Fed Governor Daniel Tarullo said on Friday.

It will also in coming weeks propose requirements on how much capital that firms across the industry should hold, he said in a speech to the National Association of Insurance Commissioners.

The industry has waited for more than five years to see the proposals, which are tied to the Dodd-Frank Wall Street reform law passed in 2010 after the financial crisis.

Under the law, federal regulators can determine that non-bank companies such as American International Group Inc (>> American International Group Inc) could put the entire financial system in danger if they fail, and require they take certain measures to stave off threats.

Read on.

Congress to consider dramatic overhaul of credit reporting

Waters bill gives CFPB “explicit authority” to monitor credit scoring

The way consumers’ credit data is reported, recorded, and used by the nation’s credit reporting agencies could be about to dramatically change, if a newly introduced bill makes it way through Congress.

On Thursday, Rep. Maxine Waters, D-CA, introduced the new legislation, called the “Comprehensive Consumer Credit Reporting Reform Act of 2016,” which would, according to Waters’ office, “overhaul the American credit reporting system so that it is fairer, more accurate, and less confusing for consumers.”

Read on.

DOJ and IRS could have brought banksters to their knees on fraudulent securitized loans using 26 U.S.C. § 860G(d)(1)

The Week wrote an opinion piece of a review of David Dayen’s book , Chain of Title. But, in the article written by Ryan Cooper, he discussed the penalities of securitization law in New York and federal if the securities (in this case mortgage loans that were sold to Wall Street to become a securitization trust) did not properly follow the original contract. From The Week: 

Not many noticed while the bubble was going up, but after it collapsed and the recession took hold, millions of people fell into default on their mortgages. Dayen’s book follows three private citizens, Lisa Epstein, Michael Redman, and Lynn Syzmoniak, all of whom were sucked into the foreclosure machine after the economic crash of 2008. In desperation they began poking around their foreclosure documents, and found howling, inconceivable errors — being foreclosed on by a bank that did not own the mortgage, obviously impossible dates, missing signatures, and so on.

They investigated further, and found that their cases were by no means unique, they were just one of the tiny minority of people who bothered to contest their foreclosure. Practically every case they looked at had gargantuan holes in them. Others had it even worse — banks who had foreclosed on people whose mortgages were paid-up, or ones who had no mortgage at all. It turned out the banks had battalions of people committing systematic fraud. “Robo-signers” would attest to “personal knowledge” of homes, or forge others’ signatures, or falsely notarize documents, hundreds of times per day. The sheer speed meant that the documents were almost universally garbage, but on the rare instances a foreclosure was challenged, the banks would usually just come back later with a new set that was magically in order.

Epstein, Redman, and Syzmoniak became obsessed with the foreclosure disaster, and they joined with others to agitate for the government to step in and provide relief for homeowners. After awhile, they began to get some traction. All this obvious fraud gave the government enormous leverage. If a bank does not have proper chain of title, it is illegal to foreclose. Since it means the bank does not own the mortgage, it is theft. Under New York law, securities which did not properly follow the original contract (and they usually didn’t) would be void. And under federal tax law, income from securities without proper documentation could potentially be taxed at 100 percent. With those tools, the federal government could have easily used the threat of prosecution and taxes to force the banks to the negotiating table.

And of course, the Obama Administration agencies never bother to tax the big banks at 100% (not just settle, fine, or give non-deferred prosecutions) if income from securities didn’t have the proper documentation. Here is a brief excerpt of securitization:

The short story is that every securitization—including Fannie Mae and Freddie Mac securitizations—requires the creation and funding of a securitization trust that must take physical possession and control of the trust property on or before the closing date of the trust.  The securitization trustee is the sole and exclusive legal title holder of the thousands of promissory notes, original mortgages and assignments of mortgage.   This transfer of the trust property, the legal res, to the trust at or around the loan origination is a necessary condition precedent to a valid securitization.  It is necessary for several reasons.

First, someone must be the “legal” owner of the mortgage loan.  Only the legal owner of the loan has the legal right to sell mortgage-backed securities (“MBS”) to investors.  Second, actual physical transfer of ownership is necessary because the cash flows that go from the homeowner through the securitization trust to the MBS purchasers are tax exempt.  If the trust does not perfect legal title by taking physical possession of the notes and mortgages, the Internal Revenue Code, specifically 26 U.S.C. § 860G(d)(1), provides for a 100 percent tax penalty on those non-complying cash flows.  Third, the legal ownership of the loans must be “bankruptcy remote” that is, because bankruptcy trustees have the right to reach back and seize assets from bankrupt entities, the transfer to the trustee must be clean and no prior transferee in the securitization chain of title can have any cognizable interest in the loans.  For this reason, all securitization trusts are “special purpose vehicles” (“SPVs”) created for the sole purpose of taking legal title to securitized loans and all securitization trustees represent and certify to the MBS purchasers that the purchase is a “true sale” in accordance with FASB 140.

But it never happened.  It is all a fantasy.  No securitization trustee of any securitized mortgage loan originated from 2001 to 2008 ever obtained legal title or FASB 140 “control” of any securitized loan.  That is part of the reason FASB changed Rule 140 on September 15, 2008, on the eve of the financial meltdown.

Which is why robo-signing and falsifying documents by banks occurred..

SECURITIZATION IN A NUTSHELL

The securitization of a mortgage loan involves multiple parties.  They are:

(1) the Borrower;

(2) the Original Lender (whomever is across the closing table from the Borrower);

(3) the Original Mortgagee (could be either the Original Lender or a “nominee” for the mortgagee, namely, Mortgage Electronic Registrations Systems, Inc. (“MERS”);

(4) the “Servicer” of the loan as identified in the securitization “pooling and servicing agreement” (“PSA”) (this is usually a bank or any entity with “servicer” in its name);

(5) the “Sponsor” is an entity identified in the PSA and the first link in the securitization chain of title between the Original Lender and the other parties to the PSA;

(6) the “Depositor” is the second link in the securitization chain of title and the entity between the Sponsor and the securitization Trustee;

(7) the “Trustee” is the sole and exclusive legal title owner of the securitized loan, the entity that must take physical delivery of the securitized notes and mortgages in order for the securitization to be valid, and the entity that issues MBS certificates to the purchasers of the MBS; and

(8)  The MBS purchaser.  This is the investor who buys MBS in reliance on the representations from the Trustee that the Trustee has valid legal title to the securitized notes and mortgages and who receives tax-exempt income from this investment.

There are three general types of securitizations.

The first is public securitizations.  These are registered with the SEC.  A typical PSA registered with the SEC is found here.  The vast majority of public securitizations are governed by New York law.  All public securitizations specifically require that the Trustee accept physical delivery of the securitized notes and mortgages prior to the “closing date” of the securitization trust.   In the linked securitization, the “Series 2004-B Trust,” the definitions show that the closing date was February 26, 2004.  Section 11.4 indicates that the Series 2004-B Trust is governed by New York law.  Section 2.02 and Exhibit N show that the Trustee certified physical receipt of the notes and mortgages before the closing date.

The second is government-sponsored entity (“GSE”) securitizations.  These are in two subcategories: Fannie Mae and Freddie Mac securitizations.

The actual securitization documents for Fannie Mae securitizations are not public.  Fannie Mae, however, publishes its securitization formshere.  For a single-family, fixed rate loan originated prior to June 1, 2007, the following “Trust Indenture” applies.  According to section 12.04 of the Trust Indenture, Fannie’s rights are governed by District of Columbia law.  As you can see from the Trust Indenture, Fannie acts as both the “depositor/custodian” (in trust law parlance, the “settlor”) and the “trustee.”  Exhibit C at the end of the Trust Indenture is the “Custodial Agreement.”  In the Custodial Agreement, Fannie represents, like the public securitization trustees referenced above, that it has received both the original note and fully executed assignments of mortgage prior to the “Issue Date” of the MBS.

Like Fannie Mae securitizations, Freddie Mac securitization documents are not public.  Also like Fannie Mae, although it takes some navigating, Freddie Mac posts its securitization forms (“Seller/Servicer Guides”) here.  Section 2(d)(3) of the Freddie Mac Seller/Servicer Guides requires that Seller/Servicer of a Freddie Mac deliver a fully executed assignment of mortgage from the Seller to Freddie Mac.  Freddie Mac formerly published on its website a search tool that allowed the user to determine the date of the Freddie Mac securitization trust and the date Freddie Mac acquired the mortgage.  Here is an example.  Section 11 of the Freddie Mac Custodial Agreementprovides that “United States” law, to be construed in accordance with New York law, governs Freddie Mac’s legal title to Freddie Mac securitized loans.

And here is the Federal Reserve’s press release on September 15, 2008:

Joint Press Release

Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
For immediate release
September 15, 2008

Federal Banking Agencies Evaluating FASB’s Accounting Proposals

The federal banking agencies are evaluating the amendments to generally accepted accounting principles proposed today by the Financial Accounting Standards Board (FASB).

These proposals would amend Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FAS 140), and FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (FIN 46(R)).

The FASB’s proposed amendments would remove the concept of a qualifying special purpose entity (QSPE) from FAS 140.  This would require that variable interest entities previously accounted for as QSPEs under FAS 140 be analyzed to determine whether they must be consolidated in accordance with FIN 46(R).  The amendment also would revise the criteria for reporting a sale versus a financing.

The proposed amendments also would modify the guidance in FIN 46(R) for determining which enterprise, if any, would consolidate a variable interest entity and require additional disclosures.  Banking organizations commonly use QSPEs and variable interest entities for securitization and other structured finance activities.

The Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision are evaluating the potential impact that these proposals could have on banking organizations’ financial statements, regulatory capital, and other regulatory requirements.   The agencies expect to engage in discussions with banks, savings associations, and bank holding companies to review and understand fully the implications of the proposed amendments.

Media Contacts:
Federal Reserve Susan Stawick 202-452-2955
FDIC David Barr 202-898-6992
OCC Dean DeBuck 202-874-4876
OTS William Ruberry 202-906-6677
Last update: September 15, 2008

THE MAJORITY REPORT: HOW 3 ORDINARY AMERICANS UNCOVERED WALL STREET’S FORECLOSURE FRAUD W/ DAVID DAYEN

“IT IS HAPPENING AGAIN”: DAVID DAYEN ON THE EPIDEMIC OF FORECLOSURE FRAUD AND THE RIGGED ECONOMY THAT SETS IT IN MOTION

“I think what struck me most about this story was the fact that the foreclosure fraud these ordinary citizens uncovered was so crude and so sloppy. I could only conclude that the people involved knew there was nobody minding the store. That says a lot about Americans’ sense of ethics. How many people working in that industry do you think knew they were committing fraud and just didn’t care? “

Earlier this week the New York Times featured a depressing story about homeless people living in the foreclosed and abandoned houses that still dot the landscape in Nevada, reminding everyone of that awful time just a few years ago when families all over the country lost their homes in what has become euphemistically known as “the housing crisis.” It was actually much more specific than that, it was an epidemic of criminal mortgage foreclosure fraud and it devastated millions of people, many of whom have still not recovered.

My Salon colleague (and one-time blogging cohort) David Dayen has written a wonderful new book called “Chain of Title” about some amazing Americans down in Florida who were caught in the maw of this epic criminal conspiracy and bravely took on the system when no one else would do it. Faced with a morass of impenetrable documents and intractable officials they took matters into their own hands and uncovered the crime of the new century by becoming internet muckrakers, using crowd-sourcing and social media. And in the process of following their fascinating story, we learn the full scope of this massive crime which goes all the way from the Florida suburbs to the boardrooms of Wall Street.

I had a chance to ask Dayen some questions about the book this week.

Can you explain in plain English how the foreclosure fraud industry worked?

You can read the rest here…

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